Never Mind Japan, the Philippines Plunged 7%

By Ben Levisohn

Yes, yes, Japan’s Nikkei fell 6.4% today, and has officially entered a bear market after dropping 20% since May 22. Yet Japan’s losses have been trumped by the Philippines Stock Exchange PSEi Index’s 6.8% plunge today. And while it has yet to enter bear market-territory, it’s close: the PSEI Index is down 17% from its May 15 high.

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Thailand and Indonesia are similarly suffering. The Stock Exchange of Thailand SET Index has dropped 15% since peaking on May 21, while Indonesia’s Jakarta Stock Exchange Composite Index has fallen 12% since topping out on May 20. Only Malaysia has bucked the trend, as the FTSE Bursa Malaysia KLCI Index has dropped just 2.8% since the middle of May.

What’s scarier is that these had been among the stronger emerging markets. The Thailand SET Index had gained 18% this year through May 21, while the Jakarta Stock Exchange Composite Index had climbed 21% to its peak. And the Philippines? The PSEi Index had gained a whopping 27% through May 15.

The losses are big, but in a report published yesterday, Credit Suisse strategists Sakthi Siva and Kin Nang Chik warned investors not to go bargain hunting, reiterating their view from last week. They write:

With the TIPs falling by at least 15% in USD terms from their recent highs, investors may consider this a buying opportunity….we believe it is not yet a buying opportunity and instead believe mean reversion is starting…We believe potential catalysts for this mean reversion trade are rising bond yields, falling currencies and EPS revisions that are no longer superior to the undervalued countries.

JPMorgan technical analysts Sunil Garg and Michael Krauss take a similar view. In a report published June 11, they write:

Declines over the last 7 trading sessions have substantially weakened the technical picture for ASEAN (ex Malaysia). We see both absolute and relative downside in Thailand, Philippines and Indonesia.

Too Early to Bargain Hunt, Not Too Late to Reduce Exposure An oversold positioning + bargain hunting on a 10-11% decline may appear appealing given historical performance – but, note the weakness across monthly/weekly charts. Rallies from oversold levels would be opportunities to reduce exposure.

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